Original Article
Oligopolistic equilibrium and financial constraints
The authors wish to thank Antonio Robles as RA and D. Abreu, K. Bagwell, C. Ballester, P. Bolton, A. Brandenburger, L. Cabral, A. Daughety, M. Escrihuela, M. Kandori, M. Katz, F. Maniquet, J. Marín, E. Maskin, A. Nicolo, G. Pérez-Quiros, I. Obara, J. Reinganum, S. Takahashi, A. Wolinsky, the two referees, and especially, B. Hermalin, for helpful suggestions. Beviá acknowledges financial support from ECO2014 53051, SGR2014-515, and PROMETEO/2013/037. Corchón acknowledges financial support from MDM 2014-0431, ECO2017_87769_P, and S2015/HUM-3444. Yasuda acknowledges research support from Grant-in-Aid for Scientific Research, 23683002 and 17K13702, administered by the Japanese Ministry of Education.
Abstract
We model a dynamic duopoly in which firms can potentially drive their rivals from the market. For some parameter values, the Cournot equilibrium outcome cannot be sustained in an infinitely repeated setting. In those cases, there is a Markov perfect equilibrium in mixed strategies in which one firm, eventually, will exit the market with probability one. Producer surplus in the maximum collusive outcome is greater under bankruptcy consideration, because the outcome that maximizes joint profits is skewed in favor of the more efficient firm. Consumer surplus and social welfare also increase in many cases, although those effects are generally ambiguous.
